This invention relates to electronic transaction systems, and more specifically to a system using an asset-based electronic cash system, for settlement of payment obligations.
In the historic past, precious metals circulated as currency. The metals circulated mainly in the form of coins, and over time improvements were made to coins to improve their reliability. These improvements included, for example, detailed engraving on the face and obverse of the coin, and milling of edges. These improvements were intended to prevent the clipping of coins, which was a process that lightened the weight of the coin. When this practice occurred, the coin was debased, i.e., it lost purchasing power because the coin no longer constituted the weight of gold it was purported to constitute.
The circulation of precious metals coins was in time supplanted by certificates during the period from 1680-1840. By this method of currency, the coins of precious metal remained in safe and secure storage, typically a vault facility maintained by a bank or warehouse company. A certificate of deposit, a paper document, was issued by the bank or warehouse company and evidenced the deposit of coin that had been made into the facility, and the certificate of deposit began circulating as a substitute for the coin. Circulation of the certificate, in lieu of the coins, offered numerous advantages. Paper was easier to transport, and a relatively small amount of certificates could be used to complete transactions of high value. There was less risk of debasement of the coin that was stored. However, while these advantages significantly improved the circulating medium, there were also disadvantages. These included forgery of paper certificates, fraud and bankruptcy of the bank or warehouse company.
As a result, another improvement to currency soon emerged. This improvement in the nature of currency was the creation of deposit currency. Deposit currency is a process that enables paper money and/or coin to circulate as currency. By this method of currency, the coins of precious metal and/or the paper currency that represented a claim to those coins, remained in safe and secure storage, typically a vault facility maintained by a bank. Circa 1840 to the present, the circulation of coin and paper money for commercial transactions was supplanted by deposit currency, i.e., money is now moved around mainly by checks and wire transfers.
The creation of deposit currency significantly improved the circulating medium. It was no longer necessary to extensively rely on coins, which could be clipped, debased, etc., nor on paper money, which could be counterfeited. By moving monetary units of account on deposit in one bank to another bank, the process of payments was significantly enhanced.
However, in time unforeseen problems have appeared which detract from the use of deposit currency as a medium of exchange. The institutions in which clients lodge their money and deposit currency sometimes are unable to meet their commitment to their clients to return the clients"" coin or paper money. The institutions, typically banks, which accept the deposits of coin and paper money from their client, loan the coin and paper money to other clients. Occasionally these borrowers failed to repay their loans, causing the bank to take a loss. Cumulatively these losses can be large enough to cause the bank to fail. A bank in that case no longer has sufficient coin or paper money to repay its liabilities to its clients.
The above described scenario constitutes what is known as xe2x80x9cpayment risk.xe2x80x9d As illustrated above, payment risk arises in conventional banking systems where a financial institution accepts deposits, then in turn loans out that money to others. This is known as xe2x80x9cfractional banking,xe2x80x9d in that the financial institution only keeps on hand a fraction of the actual assets it is holding for the account of its depositors. If the financial institution fails due to bad loans or fraud, the financial institution lacks sufficient assets to pay off its depositors. This practice has lead to significant losses in connection with financial institution failures such as at the Herstatt Bank in Germany and the BCCI scandal.
A related payment risk arises due to the fluctuating value of national currencies due to inflation and currency exchange rate variations dependent on the economy of the nation issuing the currency. Thus, there is a risk inherently associated with the use of national currencies.
A further problem of current payment systems is the problem of xe2x80x9cfloat.xe2x80x9dxe2x80x9cFloatxe2x80x9d is the amount of time a payee must wait for a transaction to be processed. This is considered an expense because of the unavailability of funds, which represents opportunity costs.
In order to eliminate these payment risks and float, James Turk has previously described, and patented in U.S. Pat. No. 5,671,364, a system which uses an asset (like gold) instead of a liability (national currency) for settling payments in a book-entry accounting system.
However, situations exist in which using a book-entry system for payments may be inexpedient or disadvantageous. In many cases, the payer and/or payee in a transaction may not want to be identified with a specific payment, preferring instead to remain anonymous. Currently, paper cash and metal coins provide such privacy in a transaction. Electronic cash also provides such privacy, although the payee can make himself known to the issuing financial institution as the recipient of anonymous funds when he redeems an electronic note for cash or other payment.
Also, smaller payments (generally considered to be amounts of less than U.S. $10) may be uneconomical to process through a book-entry system, because double-entry bookkeeping generally involves relating particular credits and debits to particular accounts, i.e., correctly identifying the payer and the payee with each transaction and the amounts involved. The cost of knowing the identities of customers is high if it requires human operators to verify this information.
Recent advances in the field of cryptography have made possible the secure and privacy-protected transfer of digital information over insecure, open communication channels such as the global computer network known as the xe2x80x9cIntemetxe2x80x9d, by using public key encryption technologies. Specific techniques for applying encryption methods to a gold-based electronic cash system have been disclosed in our co-pending application Ser. No. 08/921,760, filed Aug. 26, 1997. As discussed in our prior application, a system and method are proposed to allow gold to circulate as digital cash through the global computer network (Internet) and/or private communication networks much like cash currently circulates in the physical world. In that system, a computer system (the xe2x80x9cemintxe2x80x9d) will create digital representations of gold (ecoins). Each ecoin will represent a weight of gold held at a participating secure storage facility, and each ecoin is given by the emint a unique Digital Hall mark(trademark) by which it can be distinguished and identified. The sum total of all circulating ecoins (denominated in physical measures such as weights such as grams and/or ounces and fractions thereof) will equal the weight of all the gold held for safekeeping at the storage facilities for the users of the emint. The ownership of gold is not transferred by a computer system executing debits and credits between individual accounts, but instead by individuals directly transferring ecoins amongst themselves (as is done in cash transactions, i.e., without double-entry bookkeeping).
Apart from the system described in our copending application, several kinds of cashless financial transaction systems, not based on gold or other valuable commodities, are also available. These include credit cards and debit cards which customers may use with a wide range of retailers. Each transaction of this type is accompanied by the provision of customer account details required for the actual transfer of funds between the specific customers and the specific retailers. Another form of cashless payment system is the prepaid card system, where a card is purchased prior to a series of transactions and a value record recorded on it is appropriately decremented on each transaction. Phone cards and subway pass cards are common examples of prepaid cards currently in use.
Another form of a cashless financial transaction system, not based on gold or other valuable commodities, is the smart card system. Smart cards are integrated circuit cards used in an electronic cash transfer system. In these systems, such as the Mondex(copyright) system used in Europe, data stored in the user""s smart cards represents a cash value which can be transferred on-line with banks and off-line between cards.
Various proposals have been put forward to allow the interchange of money values between smart cards and/or xe2x80x9celectronic pursesxe2x80x9d. For example, U.S. Pat. No. 4,839,504 discloses a system where a user is able to download money value on to an integrated circuit card (otherwise known as a smart card), by communication with his bank. At the bank the same value is debited from an account of the user. Purchases are made by the user by transfer of money values from the smart card to retailer equipment off-line from the bank. The retailer retains details of the transaction (including the purchasers identity) and claims funds from the issuing bank by presenting a list of transaction details. An account reconciliation is required to allow the account of the appropriate purchaser to be adjusted.
Procedures which, as above, require ultimate account reconciliation for every transaction are attended by two disadvantages. The first is practical. The storing, transmitting and reconciling of purchaser details for every transaction places an impossible burden on equipment if all cash type transactions are contemplated. Processing all such transactions efficiently in an acceptable time is not possible, even with the most modem equipment. The second objection is social. The anonymity of cash would be lost and potential would exist for details of personal spending habits to be derived.
The second of the above objections has been addressed by Chaum, by a blind signature protocol that has been developed so that the certifying financial institution cannot determine the note which it has certified, allowing the user to maintain his privacy. In such systems the user xe2x80x9cblindsxe2x80x9d the note he submits to the financial institution for its digital signature, the financial institution applies its digital signature to certify the note, and the user then unblinds the note and uses it to make a payment to a payee. The blind signature system is described in Chaum, U.S. Pat. No. 4,759,063. However, a problem remains in that double payment by a purchaser must be detectable. Chaum allows for this problem by including, in the data transferred in an off-line transaction, encrypted information concerning the purchaser. This information is relayed to the bank when the retailer claims credit and is used at the bank to detect double use of the same xe2x80x9celectronic cashxe2x80x9d.
Smart cards are typically operated to transfer value to and from their corresponding bank accounts or to other smart cards by means of an interface to a terminal device whereby power, clock signals, a reset signal and serial data signals may be applied to the card. Generally the interface incorporates a set of electrical contacts for direct temporary electrical connection. However, wireless interfaces are also possible. In such an arrangement clock, reset and data signals may be transmitted by radio signals, optical signals, or even ultrasonic signals.
It would be desirable to provide payment systems with the benefits of elimination of the payment risk and problems of float described above, coupled together with ease of use in small value transactions as is associated with smart cards.
Accordingly, it is an object of the present invention to increase efficiency and surety of payment systems by creating a class of digital transaction systems whose units of account are assets, as opposed to all other current electronic cash whose units of account are liabilities, thereby eliminating problems of payment risk inherent in current banking and electronic cash systems.
In accordance with one embodiment of the invention, a commodity based payment system comprises: at least one deposit site having secure facilities for storage of a valuable commodity; an amount of a commodity stored at the deposit site; and a computer system for implementing and recording transactions defined in units of the commodity. The accounting of the transactions is denominated in units of the commodity. The commodity comprises a precious metal, such as silver, or most preferably, gold of a specified purity. The system permits remote access to transfer account values from a bank account to a portable electronic device, and the transfer of such values from one device to another. The portable electronic device can include a portable computer, or smaller computing and/or electronic devices such as a personal digital assistant (xe2x80x9cPDAxe2x80x9d) or a smart card. The remote terminal can connect to the system either by land lines or by wireless networking methods.
Other objects, aspects and features of the present invention in addition to those mentioned above will be pointed out in or will be understood from the following detailed description provided in conjunction with the accompanying drawings.